Monday, April 07, 2008

Utility Deregulation?

I had a young man representing the "Citizens Action Coalition" stop at the door today. Normally, the name "Citizens" in the name is enough for me to shut the door, as it tends to stand for little else than "we want to use the power of government to squish someone".

In fact, that's still the case here, but I was in the mood to listen. His organization wants to sue Duke Energy, in order to stop coal-burning electricity generation. I get the environmental impact, but I also want electricity on demand, and I want it pretty cheap. So, I'm not so sure I'm entirely on board. He was very down on deregulation, and when thinking "electricity deregulation" I think of California and Enron- which wasn't deregulation at all. It was re-regulation. And it was a miserable disaster. Deregulation got the bad name, even though the problems were rooted in regulated stasis in the face of a dynamic spot energy market.

He gave me some literature, and I found the first paragraph very interesting:

"Indiana's major utility companies (Duke, AEP, IPL, Vectren, NIPSCO) provide retail electric service essential to the health and vitality of Indiana, its economy, and its citizens. They have been granted state franchised monopolies that protect them from competition and guarantee them profit in exchange for providing adequate and reliable electricity service at the lowers reasonable cost to the public."

I think the whole problem is the state franchised monopoly. There's no competition to spur competitive pricing or innovation, so it doesn't happen unless a mandate comes down, or a lawsuit kicks a butt or two. So, why not let's do away with the state franchised monopoly? Let an outfit string up competing cables, bringing electricity generated by windmills or solar panels. The state shouldn't be interfering with that.

Heck- I'd have even written the guy a check if CAC was fighting the right fight- against the monopolies.

2 comments:

Back in '97 and '98, I think it was, I was the legislative drafter assigned to the electricity "deregulation" bill. Mostly it was a few weeks of getting drafts from a lobbyist whose affiliation I can't recall or never really knew. And, you're right, it was re-regulation.

I'm doubtful about the a) feasibility; and b) desirability of pure competition to supply electricity. First, there is just the physical hassles to having that many sets of infrastructure. How many sets of wires do you really want running through the city?

Second, I don't think the technology has changed enough to avoid the problems that led to regulation in the first place. The high barriers to entry and potential wastefulness from duplication encourages the creation of a monopoly and, once a monopoly is established, the barriers to entry make meaningful and sustained competition unlikely.

In the telephone industry, on the other hand, the technology has changed significantly. The fact that you can transmit information without a wire has revolutionized things in that industry.

In my opinion, we'll need the possibility of efficient, small electricity generators and the ability of large numbers of generators (I'm thinking a generator in every home -- but maybe just a generator in every neighborhood) to contribute to the same grid before the electricity industry is ready for deregulation. As long as wires are necessary, the grid itself might have to be regulated or government owned to allow equal access to all potential competitors.

Well, like any other competitor that makes inroads into a behemoth's (or ex-monopolist's) market share, you start small. Don't try to serve the whole city on a competitive basis. Serve a rural area, a neighborhood, or even a just a block or a few houses.

My experience on Floriana, in the Galapagos Islands, was enlightening for this. Floriana has a population of 87. Their entire power plant is a small (25' x 25') structure with solar panels.

Now I have no doubt whatsoever that a small power company could be formed for the purpose of powering a small city block that way. Begin with the purchase of that vacant lot, erect the structure, bore conduit through the public right-of-way to junction boxes or transformers at the frontage of the property, then bore a duct to the customer- no poles or above-ground wires necessary.

The electricians out there will argue that the reason power is on poles and not underground (unless mandated by law or new subdivision covenant) is the loss of juice underground. I'll counter by saying that since the power source is closer to the end-user, you eliminate the line-loss of transmission from faraway plants. And besides, it's solar.

So, I do think the technology is there. We tend to think in terms of utilities serving huge areas because it's what we know.

Maybe the way to deregulate is to simply do away with the franchising, retaining the regulation of costs until a competitor sprouts up. Or, maybe the competition would sprout up if the barrier to entry was removed.